Hyperinflation

Depression is the loss of currency in circulation (such as when a stock market crash wipes out 20% of the money). Inflation is the loss of value of that currency already in circulation. 

Anyone who has paid bills for more than a few years or is on a fixed income knows what inflation is: currency loses buying power over time. This can work to your advantage if you're looking at a large long-term loan, since the monthly payments are fixed and the buying power of that fixed amount will decrease over the life of the loan. For example, if your mortgage payment is $1,000 each month you'll have to work a certain number of hours to earn that $1,000. 20 years from now, with low to moderate inflation and wages that keep up with that rate of inflation, it will take you fewer hours to earn $1,000 to make the mortgage payment. That frees up your time and money for other things, so it actually costs you less each month.

Inflation is part of our current monetary policy, and a lot of people spend a lot of time trying to manage it and keep it under their control. Too little inflation and the economy enters a depression with banks and businesses going out of business because they can't make money by borrowing or lending; too much inflation and the wage increases don't keep up with costs and people start to go bankrupt, starve, and are forced out of their houses. However, the real boogeyman in economic policy is hyperinflation.

Hyperinflation is defined as a rate of inflation that exceeds 50% increase per month. We normally see a rise of a few percent per year and can usually adjust to that, but 50% each month means that costs are rising out of control. Imagine paying $500/month for food in January, but in February the same amount of food costs $750; by March it's $1125, and by July it's $5695. By the next January, that amount of food will cost almost $52,000 -- over 100 times as much! That's the minimum of what is defined as hyperinflation; there are examples of much worse in history.

Causes

Hyperinflation has been caused by a few different things or combinations of those things over the centuries:

Loss of Faith in a Currency

If people lose faith in a currency that is not backed by tangible assets (e.g. fiat currency, like the US dollar), the perceived value of that currency drops and people treat it as worthless. Those people start to hoard things of value, like food and materials, which slows the economy and creates more loss of faith, which begins a downward spiral. Wage and price control efforts by a government may help but are often seen as desperate moves, which instills fear and leads to more hoarding.

People all over the world have used the US dollar as a reserve currency for decades because their local currency wasn't as stable, but that is starting to change.

War

If a large portion of the available currency is sent offshore to fight a war or to pay for damages after a war, it is common for a nation to crank up the printing presses and flood the market with worthless paper. The excessive war reparations imposed on Germany after WW1, coupled with the destruction of a large chunk of their means of production led to hyperinflation, which led to the conditions that made WW2 inevitable. When people are carrying cash around in wheelbarrows to buy basic foods, and the central bank is only printing one side of the currency to speed up the printing process, you know you're in hyperinflation.

Economic Turmoil

If the central bank loses control, or even the illusion of control, over a currency people tend to shift their purchasing and savings habits, which can further push the economy towards collapse. Bank failures are another form of turmoil that can mess things up and kick off hyperinflation if the central banks start printing money to cover the losses.

Theft at High Levels

If a government or the people in it start to rob the treasury for their own uses, they usually do it in style. When billions of whatever currency start to disappear, that currency either fails or the printing presses get cranked up to cover it. Either way, more money is created out of thin air that undermines the value (perceived or real) of the currency. Yugoslavia ran into this in the 1990s when the leader had the central bank write $1.4 billion in loans to his friends. The bank then started printing huge piles of money to cover those loans, which were never going to be paid back, and to cover the operating costs of the government. Inflation increases hit 300 million percent per month before the new government seized control of prices and wages (causing massive shortages of food and fuel) before they eventually adopted the German mark as a national currency.

Effects

Hyperinflation has several effects on the population and economy

Hoarding

Once currency loses value, people start buying more durable goods to avoid having to pay more in the future. Eventually this spreads to consumables like food. Increased demand without increased supply drives prices up, which increases inflation and causes more hoarding, so the spiral continues.

Loss of Savings

If you have money set aside for retirement or college, that $100,000 dollars can lose its value quickly. At the bare minimum hyperinflation rate of 50% per month, $100k in January will be worth $1k in a year's time. People stop saving because it's a losing game, which leads to...

Bank Closures

Banks lose huge amounts due to their loans becoming worthless, and with nobody putting anything into savings, they run out of money to lend for new loans that will never bring a profit. Banks go out of business, which curtails production since most businesses rely on revolving debt to operate. The mortgage industry will collapse as well, which will further wipe out investment and savings. Legal title to real estate will be a mess until things get sorted out, but expect a wave of foreclosures and evictions in the early stages.

Barter Replaces Currency

People begin to trade with each other, exchanging tangible goods instead of paper or digital cash. This leads to an “underground” economy that doesn't send taxes to support governments and all levels, leading to reduced government services.

Government Contraction

With less coming in from taxes, and whatever does come in losing its value before it can be spent, governments start to shrink. The early cuts will be to maintenance and services, but eventually they will have to start letting employees go, which adds to...

Massive Unemployment

Banks are closing, businesses are unable to produce anything, governments at all levels are shrinking, and that means there are going to be a lot of people out of work. Those with no practical skills or training that can be bartered for food will soon be hungry and living in the streets.

How You Can Prepare

Preparing for hyperinflation isn't easy; it is one of the major SHTF scenarios just short of TEOTWAWKI (the end of the world as we know it).

• Cover your basics of water, shelter, and food for as long as you can and work towards ensuring a continuing supply of them. This is not one of the short-term emergencies like a hurricane that is going to be cleaned up with outside help within a few months; most cases of hyperinflation drag on for years and there are a few cases where it's been decades.
• Don't count on outside help. The USA has always been the one to help others recover, and there are no countries capable of helping us in any substantial way.
• Learn to barter and have skills or stored goods to barter with.
• Accept the fact that anything you can't lay your hands on is out of your control. Yes, you may have money in a savings account or IRA, but that money can disappear faster than you can blink. 
• Budgets become guidelines, since you have no control over what your money is going to be worth. Saving cash will be futile; it will be better to spend it on something durable or tradeable.
• Owning land is a good idea, but you have to be able to be on it to use it. Mortgages might get messy, deeds and titles might go missing or not be accepted by a government, travel is going to be difficult, etc.
• If you are lucky enough to have a job, get paid every day. At the minimum 50% per month inflation rate, waiting two weeks for a paycheck means losing 25% of your money. In the really bad cases, wives would meet their husbands at work on payday and take the money immediately to the store. Waiting even a day could wipe out a good chunk of your earnings.

I pray that we never see hyperinflation here, but it is always a possibility with fiat currency and central banks. We're stuck with both.